Retail gas unbundling in California is “currently beingundermined” by Dynegy Marketing and Trade’s withholding of asignificant portion of firm transportation capacity on El PasoNatural Gas from the market, the head of the California PublicUtilities Commission (CPUC) said last week. As a remedy, CPUCPresident Richard A. Bilas called on FERC to implement regulationsprohibiting the “hoarding” of pipeline capacity and to investigateallegations of anticompetitive conduct, which he contends wasevident in the Dynegy-El Paso arrangement.

He flatly accused Dynegy of “hoarding” the 1.3 Bcf/d ofturned-back capacity that it acquired from El Paso more than a yearago, saying that the Houston-based marketer’s action was directlyresponsible for the 17-cent increase in the basis differentialbetween San Juan Basin prices and California border prices during1998.

“I don’t use the word ‘hoarding’ lightly. [But] Dynegy hascontrolled this 1.3 Bcf/d for more than 13 months, and even thoughthere have been significant periods of time when Dynegy did not usea substantial amount of this capacity, [it] has never yet releasedany portion of its capacity to another marketer or shipper,” hetold a Federal Energy Regulatory Commission conference lastThursday set up to explore the relationship between federal andstate regulation of the gas industry.

(At one point Dynegy [NGC Corp.] did offer to release variousamounts of the capacity over different time periods, but receivedno bids on it. Some marketers said the prices set were too high.[See NGI, April 13, 1998])

The Dynegy-El Paso contract, Bilas said, has taken its toll onretail competition in the state because it has put transportationcapacity that was formerly held by LDCs into the hands of a singlemarketer. “How in the world is competition enhanced if the LDCs’role in the procurement of natural gas…is being replaced in largepart by one marketer?” he asked. “There’s no benefit to ratepayersin switching from regulated monopolies (LDCs) to unregulatedmonopolies (marketers) as the suppliers of natural gas.”

Bilas believes that the Dynegy-El Paso contract is a goodargument against the removal of the price cap on released capacity,which FERC has proposed in its mega-notice of proposed rulemaking(NOPR). “Unless and until the FERC can effectively prevent thewithholding of capacity like Dynegy has done, [it] should notconsider removal of any rate cap.”

Separately, Bilas asked the Commission to require bypassingpipelines to collect a surcharge for public-purpose programs -which offer assistance to low-income ratepayers and promote energyefficiency – from customers in the states where costs for theseprograms would be otherwise stranded. While LDCs in California arerequired to recover costs for such programs in their rates, thestate can’t force a jurisdictional bypassing pipeline to do thesame, he noted.

Requiring such a surcharge “would level the playing fieldbetween LDCs and bypassing pipelines, prevent uneconomic bypasswhich might otherwise occur and help fund worthy programs,” Bilassaid.

He noted that his request was not without precedent. In Order888, “FERC generally left the [the issue of] recovery of suchstranded costs and benefits resulting from retail wheeling to thestate commissions,” but in limited circumstances where statecommissions don’t have the authority to collect stranded costs,”you stated…that you would permit a customer-specific surchargeto be added to the interstate transmission rate but only for thecustomers in the state where the stranded cost occurred.” This is”precisely what we ask the FERC to require in the context ofbypassing pipelines…”

Commissioner Ruth K. Kretschmer of the Illinois CommerceCommission said that while she welcomed pipelines to her state -“in fact, the more pipelines that come to Illinois the better…” -she had problems with FERC’s policy on rate treatment (rolled invs. incremental) for new pipe projects. “I know this issue wassupposedly resolved” in 1994, but “I never agreed with that policy.I don’t like the 5% threshold that permits rolling in new pipelinecosts.” For one thing, she said the threshold is too high. Plus,she noted, pipelines have found a way to circumvent the standard -they are segmenting their large projects into smaller ones inorder to qualify for the rolled-in rate treatment.

Commissioner John M. Quain of the Pennsylvania Public UtilityCommission addressed the issue of LDC waivers of certain federalregulations – such as capacity release and shipper-must-have-titlerules – to facilitate retail unbundling efforts at the state level.He believes the Commission should respond to such waiver requestson a case-by-case basis. Although this would put more “stress” onFERC, it would be preferable to a generic approach, Quain told FERCcommissioners. He further suggested that FERC establish a stateadvisory board to the Commission to better coordinate federal-stateregulatory efforts in the gas industry.

Susan Parker

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